January 2014

Budget Deal Gives Defense Breathing Room (UPDATED)

January 2014

by Lt. Gen. Lawrence P. Farrell, Jr., USAF (Ret)

The budget agreement that Rep. Paul Ryan, R-Wis., and Sen. Patty Murray, D-Wash., announced Dec. 10 called for delaying a portion of sequester for two years and proposed $85 billion in “light touch” savings over 10 years.

Ryan and Murray are the co-chairs of the 29-member congressional conference panel that was assigned the task of finding savings to offset 2014 and 2015 sequester hits for discretionary accounts. The spending bill, known as the Bipartisan Budget Act of 2013, passed the House of Representatives and was approved by the Senate.

The outlines of the agreement, only minutes after they were released, began receiving vigorous protests from the fiscal conservative side. And although the most strident objections are coming from the right, the left-leaning caucus is not happy, either. It is a deal not likely to make anyone totally happy, so that must mean it has a chance of succeeding.

There are two central issues here. One is what went into the deal. The second is what it means for defense.

The agreement was achieved through a combination of waste reduction, elimination of special carve-outs for some corporations, modifications to federal retirement programs — both civilian and military — increases in airline fees, pension insurance premiums and an extension of sequester for mandatory spending for an additional two fiscal years — 2022 and 2023. This last provision garners an additional savings of $28 billion.

The agreement specifies that $22 billion of the $85 billion goes to deficit reduction. This leaves $63 billion to be shared between defense and non-defense discretionary spending for fiscal years 2014 and 2015, to reduce a portion of the sequester cuts scheduled to be effective in those two years.

So it is not an increase in spending, but a reduction in the cuts scheduled under the Budget Control Act and the sequester trigger. For example, the Budget Control Act specifies the discretionary total for fiscal year 2014 to be $967 billion ($498 billion for defense, $469 billion for non-defense). The agreement reduces sequester for each account by $22.5 billion, raising defense to $520.5 billion and non-defense to $491.8 billion for fiscal year 2014. In fiscal year 2015, the Budget Control Act total was $995 billion ($512 billion for defense, $483 billion for non-defense).

In fiscal year 2015, the agreement reduces sequester by $9 billion for each account, raising defense to $521.4 billion, and non-defense to $491.8 billion. So once again, and to be clear, this deal does not add money to discretionary accounts. It merely reduces the cuts scheduled to take place in fiscal years 2014 and 2015 by $63 billion, spread between defense and non-defense — a $22.5 billion reduction for each in fiscal year 2014 and a $9 billion reduction for each in fiscal year 2015. And the Budget Control Act totals for fiscal years 2016 through 2021 remain the same.

So what does it mean for the Defense Department specifically? Keep in mind, first, that the new total for defense is not exclusively for the Defense Department. It is for a collection of security functions including the military. The Defense Department receives around 95.5 percent of the defense total, so the $520.5 billion for defense gives a budget number for the department of $497 billion in fiscal year 2014 and $497.8 billion in fiscal year 2015.

These numbers are essentially flat compared to fiscal year 2013 spending. But a flat line is better than further cuts, and significantly, it returns to regular budget order as the deal requires Congress to assign committee allocations. In other words, it is a budget.

This is huge for the Defense Department as it will allow the services to balance their accounts, which currently they are unable to do under sequestration. They need a return to regular order. Army Chief of Staff Gen. Raymond Odierno has already said the deal will permit the service to address some of its readiness issues.

One other thing this will do for the services is give them two years to address the necessary force structure adjustments they will need to make to live within the Budget Control Act limits on discretionary spending through fiscal year 2021.

As already mentioned, there are some significant headwinds on both sides to this deal, but there is some countervailing pushback to these objections from congressional leadership. House Speaker Rep. John Boehner, R-Ohio, has already come out against these objections from his side of the aisle. Comments from the left seem to indicate support for the arrangement, though not total satisfaction.

The right is not happy to give relief to the spending restraint inherent in sequester, while the left would like more spending on the social side, such as an extension of unemployment benefits. But both sides seem willing to compromise to avoid a reprise of the October government shutdown disaster.

In summary, this is not a grand bargain, but it gives the Defense Department and the military services some breathing room to make the necessary adjustments before Budget Control Act spending constraints are re-imposed in fiscal year 2016.

In the long run, the federal budget is not on a sustainable path, but the bipartisan cooperation exhibited by the Ryan-Murray panel gives some reason to hope that more can be done in the same spirit.